March 6, 2011

“Made in China,” maybe less than we think

We are so used to quoting statistics that show that China is the overwhelming provider of the world’s toys that we may all want to take a moment to digest a great article in The Wall Street Journal entitled: “’Not Really Made in China.’” According to the piece, “”…traditional ways of measuring global trade produce…numbers [that] fail to reflect the complexities of global commerce where the design, manufacturing and assembly of products often involve several countries.”

The article uses the iPhone as an example. Here is how the article puts it: “Trade statistics in both countries consider the iPhone a Chinese export to the U.S., even though it is entirely designed and owned by a U.S. company, and is made largely of parts produced in several Asian and European countries. China's contribution is the last step—assembling and shipping the phones.

So the entire $178.96 estimated wholesale cost of the shipped phone is credited to China, even though the value of the work performed by the Chinese workers at Hon Hai Precision Industry Co. accounts for just 3.6%, or $6.50, of the total, the researchers calculated in a report published this month.

I am sure that far more of a toy comes from China than does an iPhone or similar high tech product. The notion of “Country of Origin” is, however, becoming obsolete and a change likely needs to be made in how we calculate who makes what. In fact, the article states that if a change was made, the US trade deficit would be cut in half.